The coronavirus pandemic has raised many questions for accountants and auditors of governments, especially as it relates to special funding received in conjunction with the pandemic.
The Governmental Accounting Standards Board (GASB) has released some guidance in Technical Bulletin 2020-1 to address certain specific accounting and financial reporting issues related to the pandemic. It is titled Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases.
Here are some highlights from this guidance:
Paycheck Protection Program (PPP) Loans
Certain entities, such as nonprofit charter schools, are required to prepare financial reports in accordance with GASB standards. These entities may receive a forgivable loan under the PPP program. The guidance issued by GASB states that under the economic resources measurement focus and accrual basis of accounting, the loan be reported as a liability until the non-profit is legally released from the debt. The related inflow of resources should not be recognized until the entity is legally released from the debt.
Coronavirus Relief Funds
The guidance addresses whether funds received are subject to eligibility requirements or purpose restrictions, and when to recognize revenue from these funds. The GASB guidance points out that the CARES Act requires that these funds should be used for necessary expenditures incurred due to the pandemic. The meaning of necessary was clarified by GASB to include, among other expenditures, payroll related to personnel substantially dedicated to mitigating or responding to the pandemic, support for hospitals, preventing homelessness, and resources being provided to citizens affected by the pandemic.
The guidance explains the standards that support accounting for these funds are voluntary non-exchange transactions, subject to eligibility requirements. Based on GASB’s conclusion, governments should recognize funds received as liabilities until eligibility requirements are met, at which point they should be recognized as revenue.
GASB clarified that if an amendment to a regulation occurs after the government's financial statement date but prior to issuance of the financial statements those amendments should be considered a non-recognized subsequent event.
In closing, this GASB guidance is helpful when determining some of the accounting and financial reporting concerns governments are experiencing relating to the pandemic. Please contact us directly if you have any questions and/or concerns related to this topic.